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1. Revisiting the Latvian and Greek Financial Crises: The Benefits of Front-Loading Fiscal Adjustment

Author:
Anders Åslund
Publication Date:
05-2015
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
This paper discusses why Greece has done so poorly in comparison with all other European Union countries since the onslaught of the global financial crisis in 2008. To show what was wrong with its fiscal adjustment, this paper compares Greece with the other European Union country that was hit be the most severe fiscal crisis, namely Latvia. The conclusion is that front-loaded fiscal adjustment works much better. Greek economic policy has been a popular topic among opinion writers, notably Nobel Prize winner and New York Times columnist Paul Krugman, who claimed that Greece suffered from austerity. Because of his prominence in the international public debate, I shall scrutinize his arguments on the Greek crisis. The paper also examines what policy the International Monetary Fund has pursued with regard to Greece, and how its views have been influenced by the debate and Greek economic developments. Finally, the paper assesses what lessons can be drawn from the contrasting experiences of Latvia and Greece. The conclusion is that a fiscal adjustment should be sufficient to resolve the crisis to restore confidence and that it should be as front-loaded as is practically and politically possible.
Topic:
Financial Crisis, Finance, Economic Growth, Macroeconomics, Fiscal Policy, and Trade
Political Geography:
Europe, Eastern Europe, Greece, and Latvia

2. Forecasting Financial Stress and the Economic Sensitivity in CEE Countries

Author:
Grzegorz Poniatowski and Maciej Krzak
Publication Date:
07-2014
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2015-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.
Topic:
Economics, Financial Crisis, and Macroeconomics
Political Geography:
Europe, Central Asia, Caucasus, Eastern Europe, Poland, Lithuania, Estonia, Hungary, Latvia, and Czech Republic

3. Southern Europe Ignores Lessons from Latvia at Its Peril

Author:
Anders Åslund
Publication Date:
06-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
In the current financial crisis plaguing Europe, Latvia stands out for resolving its financial problems quickly and resolutely. After contracting 24 percent in 2008 and 2009, it grew at the rate of 5.5 percent in 2011. The speed and determination. with which the government carried out austerity measures in 2009 and restored confidence after suffering the worst output decline is a crucial lesson for the ailing South European countries—Greece, Italy, Portugal, and Spain. Many policy observers and economists have dismissed Latvia's crisis resolution as irrelevant to the situation in Southern Europe. The Latvian orange, they say, cannot be compared with the South European apples. I argue otherwise.
Topic:
Economics, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, and Latvia

4. Lessons from the East European Financial Crisis, 2008-10

Author:
Anders Åslund
Publication Date:
06-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
In the fall of 2008, Central and Eastern Europe became a flashpoint in the global financial crisis. The ten new eastern members of the European Union were in a state of severe overheating in all regards. Inflation surged everywhere and to double digits in Bulgaria, Estonia, Latvia, and Lithuania. Wages and real estate prices skyrocketed, rendering these countries ever less competitive, which further undermined their current account balance. Output plunged and unemployment soared.
Topic:
Economics, Global Recession, and Financial Crisis
Political Geography:
Europe, Lithuania, Estonia, Bulgaria, and Latvia

5. Russia's Strategic Choice

Author:
Graeme P. Herd
Publication Date:
05-2010
Content Type:
Policy Brief
Institution:
The Geneva Centre for Security Policy
Abstract:
In the wake of the global financial crisis, a debate over necessary policy responses morphed into something much more profound and fundamental – the sustainability of Russia's current governance model and its preferred longer-term modernization paradigm. On 10 September 2009 President Medvedev published a remarkably frank article entitled 'Russia, Forward!' This article noted that Russia's governance model appeared to be failing, proving vulnerable in the face of the global financial crisis. President Medvedev himself criticized Russia's 'humiliating' dependence on raw materials, as well as its 'inefficient economy, a semi-Soviet social sphere, an immature democracy, negative demographic trends, unstable Caucasus.' In his 12 November 2009 Message to the Federal Assembly, Medvedev elaborated further on this theme: Russia could either modernize or deteriorate; modernization would provide a touchstone for 'how we can overcome our chronic backwardness, dependence on raw materials exports, and corruption'. On 3 February 2010, the Institute for Contemporary Development (INSOR) published a report that received widespread coverage entitled 21st Century Russia: The Image of Tomorrow We Want. As President Medvedev had created INSOR in 2008 to give him independent advice on economic and foreign policy and sat as a trustee on its board, this report received widespread publicity. Such publicity was magnified as the report touched just about every exposed nerve by advocating that Russia should join NATO, end censorship, abolish the state security service, and adopt a Western-style democracy, entailing the separation of the courts from the state, of the legislative branch from the executive, horizontal modernization (characterized as the debureaucratization of the vertical top-down corrupt, over-regulated economic process)3. Without change, Russia faced a strategic cul de sac that leads to slow and steady strategic marginalization: 'In a few years, when it turns out that Russia has nothing to boast about except export supplies of raw materials at prices that are dictated to us, we will be exporting people. And, not only the cleverest like now, but any workers, who are in demand in Europe, as is happening today in Latvia, for example. I frankly do not know what Russia should do in this situation. This problem will be one of the main ones for the president who is elected in 2012
Topic:
Democratization, Global Recession, and Financial Crisis
Political Geography:
Russia, Europe, and Latvia